Targeted Asset Purchases and Business Dynamics: Evidence From Exits and Entries of German Plants

Abstract

Do targeted asset purchases alter business dynamics of small and medium sized enterprises (SMEs) and their plants? In July 2022, the European Central Bank (ECB) established the Transmission Protection Instrument (TPI), which allows for targeted asset purchases to prevent a resurgence of the sovereign debt crisis during times of rising interest rates. To investigate unintended consequences of such crisis tools, we assess a similar program, conducted by the ECB between 2010 and 2012. We find that plants linked to banks exposed to the targeted asset purchases are approximately 20% less likely to exit. We observe heterogeneous effects depending on the capitalization of banks and productivity of firms.

Keywords: Plant exits, extensive margin factor reallocation, asset purchase programs, targeted asset purchases, crisis instruments, monetary transaction mechanism, Transmission Protection Instrument